There’s no denying that the past few years have been difficult for fintech stocks. Rising interest rates have made both stocks and loans less attractive. Product duplication from competitors has also made the fintech industry extremely competitive.

These difficulties are front and center when you look at the performance of fintech stocks. Out of SoFi (NASDAQ:SOFI), Coinbase (NASDAQ:COIN), Robinhood (NASDAQ:HOOD), Upstart (NASDAQ:UPST) and Affirm (NASDAQ:AFRM), which all began trading in 2020 or later, UPST commands the highest overall return of just 4%. HOOD sits in last place with a loss of about 66%.

Each of these five companies set out to revolutionize the financial industry and challenge existing firms by providing modern solutions for their customers. But things have been tough. SoFi suffered through the student loan moratorium and Coinbase and Robinhood have had to navigate crypto volatility.

Now trading at lower prices, interest in fintech stocks has increased considerably as investors question if there is room to the upside. Meanwhile, the big question remains: Can these relatively new companies take a bite out of market share from the incumbents? And can they demonstrate sustained growth and efficiency in the process? If the answer is yes, then there should certainly be an opportunity for significant gains in the long term.

Let’s first take a look at the respective revenue and revenue growth rate for each of these companies to help answer that question.

Fintech Stocks: Revenue and Revenue Growth

There’s no question that Coinbase is the clear leader in trailing 12 months (TTM) revenue, although its revenue has been on a clear decline since Q1 2022.

SoFi and Affirm’s revenue lines show a sustained uptrend during the past few years, while Robinhood’s revenue is more volatile due to its association with cryptocurrency and its public image issues. Customer retention, name recognition and partnerships have allowed SoFi and Affirm to grow each quarter.

Upstart has also seen its revenue decline significantly in recent quarters and carries the only negative revenue CAGR within the group. That isn’t a good signal for shareholders. Affirm, Robinhood, and SoFi lead the pack with the highest revenue CAGRs.

Coinbase’s growth rate is largely dependent on the interest for cryptocurrency, which is a huge negative for shareholders who prefer companies with predictable sales.

Fintech Stocks: Gross Profit Margin

Fintech companies tend to be asset-light businesses, which explains their high gross profit margin (GPM) percentages. A higher GPM percentage is better, as this is the percentage of money left over from revenue after subtracting out cost of golds sold (COGS).

SoFi has shown a strong last 12 months (LTM) GPM uptrend for several years, while Coinbase has the highest GPM within the group at an impressive 85.61%. Meanwhile, Upstart has seen its GPM fall in a clear downtrend over the past few quarters and level out during the most recent quarter. This is due to the company’s cost of goods sold growth outpacing its revenue growth. Upstart announced a 20% employee reduction earlier this year to alleviate this.

Affirm carries the lowest GPM within the group, but it has still trended upwards since its public debut.

Investors will favor companies that have rising and high GPMs over companies that have volatile or decreasing GPMs. For example, Robinhood has the third highest GPM within the group, but it is just now passing its 2021 highs. The same applies to Coinbase, which saw its GPM peak in Q4 2020. On the opposite side is SoFi, which has seen its GPM increase every quarter since Q3 2020.

Fintech Stocks: Earnings Per Share

Earnings per share (EPS) let an investor know if a company is profitable or not.

All five of these companies have not been profitable over the last 12 months. However, this doesn’t automatically mean that these companies are bad investments. Stocks are largely valued on the basis of their future earnings, although past earnings can provide hints to whether company is on the right track to profitability.

SoFi leads the group, although its EPS fell during Q3 to a loss of 46 cents compared to a loss of 26 cents during Q2. This was primarily due to a sublease arrangement goodwill impairment expense sustained during Q3. Without the impairment, SoFi would have reported a Q3 EPS loss of 3 cents.

On the bright side, analysts expect the company to break even during Q4, driven by the resumption of student loan payments.

Coinbase exhibits the strongest EPS uptrend during the past few quarters but its profitability status is still way in the negative. Affirm and Upstart’s respective EPS have leveled during recent quarters and have shown no significant improvement since becoming publicly traded. Robinhood has carried a sustained rise in EPS since Q3 2021.

Becoming profitable without sacrificing growth is a universal goal for all unprofitable companies, and the sooner the better. Here’s when Wall Street analysts tracked by Koyfin expect these five companies to turn a profit on an annual basis:

1. SoFi: 2024 GAAP EPS of 6 cents.
2. Robinhood: 2024 GAAP EPS of 1 cent.
3. Coinbase: 2028 GAAP EPS of $2.07.
4. Upstart: Analysts do not forecast any profits through 2026.
5. Affirm: Analysts do not forecast any profits through 2028.

Fintech Stocks: Analyst Price Targets

One of the most challenging aspects of investing is buying a stock at the right time and valuation. Because these five companies participate in different segments of the finance industry, it’s difficult to compare them using a single valuation metric, such as price-to-earnings (P/E).

As a result, we can tap into the analysts on Wall Street to get a glimpse on how these companies should be valued:

1. SoFi carries an average price target of $9.12 among 17 analysts with coverage, which is near where the company is currently trading. The lowest price target is $3, while the highest is $15.
2. Robinhood carries an average price target of $11.65 among 13 analysts with coverage, which is near where the company is currently trading. The lowest price target is $9, while the highest is $23.
3. Coinbase carries an average price target of $90 among 21 analysts with coverage, implying downside of 40%. The lowest price target is $35, while the highest is $160.
4. Affirm carries an average price target of $23.44 among 19 analysts with coverage, implying downside of 44%. The lowest price target is $6, while the highest is $55.
5. Upstart carries an average price target of $21.67 among 15 analysts with coverage, implying downside of 51%. The lowest price target is $6, while the highest is $42.

Fintech Stocks: Comparative Advantages

When considering an investment, qualitative factors are just as important as quantitative factors. One of the most important qualitative factors to analyze is competitive advantage, which is a characteristic that allows a company to excel over its competitors.

SoFi (SOFI)

Let’s first start with SoFi, which operates as a modern, all-in-one fintech app that provides lending, investing, banking and credit card services. The company reported over 6.9 million members as of Sept. 30 and places an emphasis on digitizing financial services.

SoFi secured a major victory in 2022 when it received a bank charter from the Office of the Comptroller of the Currency (OCC), allowing it to provide a more diverse set of financial services.

“With a national bank charter, not only will we be able to lend at even more competitive interest rates and provide our members with high-yielding interest in checking and savings, it will also enhance our financial products and services to ensure they efficiently meet the needs of our members, business partners, and communities across the country,” said SoFi CEO Anthony Noto.

SoFi’s recognition as a national bank sets it apart from other emerging fintech companies, but critics argue that the company should therefore be valued as a bank, an industry that carries a historically low average price-to-earnings (P/E) ratio.

Ultimately, SoFi’s competitive advantage, if any, seems to be its diverse set of products presented in a simplistic manner. Although its products are not unique, SoFi boasted 27% revenue growth in the last quarter.

Coinbase (COIN)

Next is cryptocurrency exchange Coinbase, which was founded in 2012 by Brian Armstrong. Today, Coinbase is the second-largest crypto exchange in the world based on trading volume, trailing Binance. That hasn’t kept COIN stock from shedding about 55% since it became publicly traded.

Coinbase’s competitive advantage might just lie in the fact that it is still around, unlike competitors FTX, Celsius, Voyager, and BlockFi. That’s been driven by its strong security infrastructure and adherence to regulatory policies. Navigating the regulatory landscape is a tricky, and at times, unpredictable process as regulatory agencies themselves try to figure out how to best protect users of cryptocurrency products.

Coinbase itself doesn’t offer any unique products or services. Still, the company has managed to stay afloat while many of its competitors have filed for bankruptcy.

Robinhood (HOOD)

Next up is Robinhood, a financial services company that offers commission-free trading and investing services in both stocks and cryptocurrencies. It also offers Robinhood Gold, a subscription-based account that provides higher interest rates on cash, Morningstar research and speedier deposits.

Robinhood’s claim to fame was pioneering commission-free stock trading. When Robinhood came into business, commission-free trading was extremely rare. Today, it’s almost ubiquitous. Instead, Robinhood makes money from payment from order flow (PFOF), a controversial practice represented as “transaction-based revenues” on the company’s financial statements. In recent quarters, the company’s interest-based revenue has surpassed its transaction-based revenue due to higher interest rates.

Like SoFi, Robinhood doesn’t offer a unique, proprietary service and does not seem to have a competitive advantage. The company initially stood out with its commission-free trades, but this has since been replicated by the vast majority of other brokers.

Upstart (UPST)

Upstart operates as a lending platform that uses artificial intelligence (AI) and machine learning (ML) to estimate the creditworthiness of borrowers. The company’s AI evaluates thousands of data points, such as education and employment status, and provides a decision in a timely manner. 88% of Upstart’s loans are fully automated.

Upstart itself believes that AI and ML give it a leg up in the lending space:

“Business leaders who take the time to understand ML components, how they work, and how to execute them well for their use cases will ultimately be the winners in lending in the next five to ten years.”

Using AI to vet and accelerate the lending process for potential borrowers can certainly be seen as a competitive advantage. But is it really?

Based on Upstart’s recent earnings and its all-time loss of about 45%, borrowers and investors haven’t exactly found the company’s AI to be effective. It’s still unprofitable and reported Q3 revenue and fee revenue of $135 million and $147 million, down by 14% and 18% year over year, respectively. In addition, Upstart’s lending partners originated 114,646 loans, down by a significant 34% YOY. Higher interest rates haven’t helped the company’s prospects as they make loans less attractive.

“Of course we’d prefer to be growing quickly, but this is a time when it’s wise to be operating in a conservative mode,” said CEO Dave Girouard in Upstart’s third quarter earnings.

Affirm (AFRM)

Affirm is a leading buy now, pay later (BNPL) company that allows its users to pay for a product over time instead of immediately. The company has partnered with several e-commerce leaders, such as Amazon (NASDAQ:AMZN) and Shopify (NYSE:SHOP), which can be seen as a competitive advantage. BNPL companies directly benefit online shopping websites, as they can increase conversion rates and sales as a result of a flexible payment schedule.

Supporters of AFRM stock argue that Affirm’s other competitive advantages could lie in its consumer data and first-mover status. However, direct competitors of Affirm, such as Klarna and Afterpay, could have this data as well. On top of that, while Affirm was an early mover in the BNPL space, larger companies like Apple (NASDAQ:AAPL) have began to offer similar services in order to take advantage of their name recognition and existing customer base.

That hasn’t stopped Affirm from soaring more than 380% this year with revenue growing by about 37% during the third quarter. But at the same time, analysts forecast declining rates of growth over the next four quarters as competition heats up.

Fintech Stocks: Final Thoughts

Based on a scarcity of clear competitive advantages, investing in the fintech space is an extremely tricky process. This is apparent in the subpar all-time returns of these five companies. Meanwhile, financial incumbents like Mastercard (NYSE:MA) and Visa (NYSE:V) have each boasted returns of about 35% since 2020, which does not include dividends.

Coinbase seems to carry a noticeable competitive advantage within the group, although a strong infrastructure and regulatory compliance should be a given for any cryptocurrency company. Affirm also stands out due to its partnerships.

However, SoFi is the most well-positioned within the group due to its bank charter and diverse product set. Analysts expect the company to become profitable on an annual basis next year as student loan payments hit full stride. In addition, SoFi has emerged as a favorite among young users and is adept at balancing marketing costs with profitability while maintaining high margins.

At the end of the day, competitive advantages in fintech companies seem to lie in their consumer acceptance, partnerships, and marketing skills. SoFi, which sponsors the SoFi Stadium in Inglewood, California, received mass press coverage after announcing that it would host several shows for Taylor Swift’s The Eras Tour. On the other end is Robinhood, which has been consistently attacked on social media for its participation in PFOF.

The biggest risk to these fintech companies is that competitors could replicate their services. This isn’t an easy process, which is why Shopify and Amazon have partnered with Affirm, for example, but it’s still certainly possible. For now, investing in fintech should be viewed as a speculative bet with understanding that new leaders will eventually emerge in the financial space.

On the date of publication, Eddie Pan held a LONG position in AMZN and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.